Housing Starts Plunge 17.6%

Rising Energy Costs Are Main Culprit As Producer Prices Surge

WASHINGTON -- New housing starts fell 17.6 percent in March, the biggest monthly drop in more than 14 years, fueling fears that the nation's four-year housing boom may be slowing.

The housing numbers, which the Commerce Department released Tuesday, came as the Labor Department announced that producer prices shot up 0.7 percent in March, largely because of soaring energy costs.

There was good news in Tuesday's bad news, however.

Higher energy costs accounted for virtually all the rise in producer prices, and because the housing and inflation numbers point to an economic slowdown, they may make it less likely that the Federal Reserve will raise interest rates aggressively next month. That would keep lending rates low, allowing the housing boom to continue.

The National Association of Realtors still projects a banner year for sales of new and existing homes. "We're projecting starts to have their best performance since 1978," said spokesman Walter Molony, expecting a 1.4 percent increase in 2005 to 1.98 million new-home starts.

Realtors also expect sales of existing homes -- which account for 85 percent of home sales -- to be the second best on record.

Interest rates rise or fall partly in response to the threat of inflation, so oil prices and inflation threaten the housing market's health.

The Labor Department said its Producer Price Index -- a measure of the wholesale prices that farmers, factories and refineries pay -- rose 0.7 percent in March, the biggest jump in five months. A 5.3 percent gasoline-price increase in March drove the hike. The numbers showed oil's inflationary shock waves spreading across the U.S. economy.

But the monthly numbers also showed that core inflation -- the measure of prices excluding energy and food -- rose only 0.1 percent last month. That suggests inflation is in check, except for oil prices.